The Indian economy will expand 7.4 per cent in 2018, but the growth will slow down to 7.3 per cent in the next year as domestic demand tapers on higher borrowing cost due to rising interest rates, Moody\u2019s Investors Service said Thursday. In its report titled \u2018Global Macro Outlook 2019-20\u2019, Moody\u2019s said the economy grew 7.9 per cent in the first half (January-June) of 2018, which reflects post demonetisation base effect.<\/p>\n
Stating that borrowing costs have already increased on higher interest rates, Moody\u2019s said it expects the Reserve Bank of India will continue to steadily raise the benchmark rate through 2019, which will further dampen domestic demand. \u201cThese factors will limit the pace of the Indian economy\u2019s growth over the next few years, with real GDP growth of 7.3 per cent in 2019 and 2020, from around 7.4 per cent in 2018,\u201d Moody\u2019s said.<\/p>\n
At its monetary policy review last month, the RBI maintained status quo on the benchmark interest rate Repo rate but changed the monetary policy stance to \u2018calibrated tightening\u2019 from \u2018neutral\u2019. Unveiling the bi-monthly monetary policy, the central bank had warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation.<\/p>\n
Moody\u2019s said the greatest downside risk to India\u2019s growth prospects stem from concerns about its financial sector. \u201cThe impact of higher global oil prices compounded by sharp rupee depreciation raises the cost of households\u2019 consumption basket, and will weigh on households\u2019 capacity for other expenditures. Borrowing costs have already risen because of tightening monetary policy,\u201d it said.<\/p>\n
In the short term while measures to stabilise the financial sector are put in place, credit growth is likely to slow, Moody\u2019s said. \u201cDownside risks from a prolonged liquidity squeeze for non-bank financial institutions, which could lead to a sharper slowdown in their credit provision, remain,\u201d it added. The liquidity squeeze for the NBFCs started after Infrastructure Leasing & Financial Services defaulted on a series of its debt obligations. As much as Rs 2.5 lakh crore worth of redemption of NBFC debt papers is lined up. Timely repayment of these obligations is being watched keenly by the financial markets as this could be one of the key factors for stability.<\/p>\n
Moody\u2019s said global economic growth will slow in 2019 and 2020 to a little under 2.9 per cent from an estimated 3.3 per cent in 2018 and 2017. The US-based agency expects trade and geopolitical frictions between the US and China to persist for some time. \u201cThis will weigh on the global trade growth and will reshape trade flows and supply chains,\u201d Moody\u2019s added.<\/p>\n","protected":false},"excerpt":{"rendered":"
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